Co-Investment with Private Equity funds, purchase of private equity businesses, and direct buyouts most significant modes of FDI entry for Gulf investors interested in Sub-Saharan Africa
- Buamim: Our new study and presence in Africa a pledge of support for UAE and GCC investment- and we will increase our efforts to direct our business community to the right markets
- Gulf firms provide US$2.7bn in foreign direct investment into Sub-Saharan Africa in the first half of 2015, and a total of US$9.3bn from 2005-14
- Nigeria, South Africa, Kenya and Uganda have attracted the largest number of Gulf investors—between 10-25 firms each
- Financial services, retail, tourism and logistics represent the most favored sectors by Gulf investors
- Gulf investors own 20 hotels and resorts in Sub-Saharan Africa
- Average growth prediction of 5.3% for the continent in 2017-2020
- Sub-Saharan Africa’s population will host a third of humanity by the end of the century
- National Bank of Abu Dhabi, National Bank of Qatar amongst the most notable investors in financial services sector; MAF Group and Landmark in retail
- Rani Investments and Kingdom Holdings of Saudi Arabia, as well as Kuwait’s IFA group the most notable investors in tourism sector
- DP World, Kuwait’s Agility, and Aramex the most active in the logistics sector; Julphar, Abraaj, Kuwait’s Al Bader group in manufacturing
In support of its efforts to highlight attractive investment opportunities in Africa to its members, new research by the Dubai Chamber of Commerce & Industry (www.DubaiChamber.com), entitled “Beyond Commodities: Gulf Investors and the new Africa”, has highlighted that co-investment with private equity funds, purchase of private equity businesses, and direct buyouts or minority share acquisition represent the most significant modes of FDI entry for Gulf investors interested in Sub-Saharan Africa.
The study, produced in collaboration with The Economist Intelligence Unit, analyzed Gulf investment into Africa, opportunities available to investors, and the investment vehicles they can use to enter African markets. It also sheds light on the continents’ most promising non-commodity sectors.
The study was launched during a press conference on the sidelines of the Third African Global Business Forum, hosted by Dubai Chamber and currently taking place in the Atlantis Hotel in Dubai. And it revealed a number of factors that make gulf investment into these sectors particularly attractive: Demographic trends, growing consumer markets, economic stability and an improving business environment, as well as a resilience that has allowed it to withstand global recession and the current commodity price slump.
The study also found that East Africa was the most appealing region for non-commodity investment from the Gulf, with retail and hypermarkets, automotives, commercial banking and tourism considered key sectors. Manufacturing in Ethiopia, leisure, retail and tourism in Mozambique and Kenya, and education in Uganda were also popular with Gulf investors.
H.E. Hamad Buamim, President & CEO of Dubai Chamber deemed it a duty towards its members and the wider investment community to make research like this available, given the current dearth of detailed and specialized economic studies, and noted that the EIU study contains insights around sectors that UAE companies hold an eminent and competitive position in, in particular corporate banking, retail, tourism, and logistics. He also noted that the research the Chamber conducts is backed by a significant on-ground presence in Africa, which helps to identify opportunities for UAE companies, helping to increase their presence in the process.
Buamim also noted,: Most studies and global indicators point towards a future that is very bright in Sub-Saharan Africa, and so we’re putting our trust in these markets that we think will drive the engine of growth in the region, ensuring that Dubai Chamber is, once again, at the forefront of the investment community, and committed to ensuring that all our capabilities are being used to reinforce the competitive nature of the private sector in Dubai, mirroring the high reputation that Dubai has managed to build for itself in such a short space of time.
Buamim added that the Dubai Chamber aims, through the forum, to encourage Gulf investors to expand trust beyond the borders of North Africa, which currently makes up the bulf of Gulf investment, pointing the opportunities in sectors as diverse as logistics, hospitality, retail and corporate banking.
The study showed that Gulf investors Gulf investors have three potential modes of entry into the African market: co-investment with private equity funds, purchase of private equity businesses, and direct buyouts or minority share acquisition. It also found that outside of South Africa, stocks and shares remain of limited interest to Gulf investors
It also found that malls and hypermarkets are emerging in a handful of countries, noting that Gulf companies have a comparative advantage thanks to a track record in franchising and adapting brands to local tastes and cultures. These firms are also skilled at managing the logistics of multi-country distribution.
The study also drew attention to the role Gulf airlines have played a role in opening Africa to international tourists, with Gulf investors owning around 20 hotels and resorts in Sub-Saharan Africa. However, the need to improve logistics in FMCG was also noted- which remains challenging due to weak infrastructure. Gulf firms have experience to share but only a few are exploring investment in Africa at the moment.
The study highlighted data from the African Development Bank which shows that average real GDP growth across the continent was 6.1% in 2010-14 and per capita income rose by nearly 60% to US$1,788, according to EIU estimates. The research forecast a deceleration to 4.1% in 2015, mainly due to the commodity price shock, before a pick up to 5.1% in 2016. In addition, the IMF forecasts average growth of 5.3% from 2017-2020.
The study also underlined the importance of the average rate of population growth across Africa, which is 2.7%, compared with a global average of 1.1% (and 0.5% in China). The mid-case in the latest UN population forecasts see sub-Saharan Africa’s population ballooning from 962m in 2015 to 1.4bn in 2030 and eventually to 3.9bn at the end of the century, when it will host a third of humanity.
The study also found that one widespread economic stabilisation trend in Africa has been reduced debt, thanks to a string of bilateral and multilateral initiatives which cancelled a large part of the external debts of Sub-Saharan Africa, bringing government debt down to 30% of GDP in 2014, from 67% in 2000, according to IMF data.
Africa’s Economic Resilience
Whilst the continent has been affected by negative global headwinds, including the commodity price slump- demographic trends, growing consumer markets, economic stability and an improving business environment have all helped. As will the planned Tripartite Free Trade Area- important in a continent with so many small and landlocked countries.
Africa and the Gulf
The study indicated that whilst the GCC and Africa have strong geographic and cultural connections, these have not necessarily translated into more than modest trade. In 2014, GCC exports to Sub-Saharan Africa totalled US$19.7bn, according to IMF data, which was just 2% of the GCC’s total exports. Meanwhile, the GCC only received US$5.5bn of imports from Africa, most of which were destined for the UAE, partly for re-export.
However, according to the research, direct investment flows are growing. A number of pan-African companies have relocated their headquarters to Dubai, boosting links between the Gulf and Africa. These include Stallion Group, the second largest conglomerate in Nigeria and active across West Africa, Atlantic Holdings of Ghana and Mara Group of Kenya.
According to data from FDi Markets, Gulf firms provided at least US$9.3bn in foreign direct investment into Sub-Saharan Africa in the decade 2005-14, plus a further US$2.7bn in the first half of 2015, more than in any previous full year. It’s important to note that during this time, Gulf countries invested nearly ten times as much in North Africa over the same period, demonstrating closer links with fellow Arab countries.